Learn · Risk
What is a stop loss order and how to set one
A stop loss is a pre-set order that exits a position once the price hits a level you choose, capping the loss on a trade. Disciplined traders risk a small fixed percentage of capital per trade.
In one line
A stop loss is a standing order that automatically sells (or buys back) a position once the price reaches a level you set in advance, capping your loss on the trade, and a common discipline is to risk no more than 1 to 2% of your capital on any single position.
BazaarBaaziSource & method
How a stop loss is structured
A stop loss has a trigger price and, optionally, a limit price. With a stop-loss market order (SL-M) you set only the trigger, and when the market touches it your order fires at the best available price. With a stop-loss limit order (SL) you set a trigger and a limit, and the order only fills within your limit, which protects against bad fills but risks not filling at all in a fast move.
Position sizing is the other half. Decide first how many rupees you are willing to lose if the stop hits, say 1% of a 5 lakh account, which is 5,000 rupees. If your entry is 500 and your stop is 480, you are risking 20 per share, so you buy 250 shares. The stop and the size are set together, before the trade, never after.
Where stops go wrong
The classic error is a stop placed at an obvious round number where everyone else clusters, which gets swept by a quick spike before the move resumes in your direction. Placing the stop beyond a structural level, just past a swing low or a support band, survives the noise better than a stop sitting on the number itself.
The second error is moving the stop the wrong way. A stop exists to be honored. Widening it because the trade is going against you is how a small, planned loss becomes a large, unplanned one. Trailing a stop in the direction of profit is fine. Loosening it in the direction of loss is the habit that empties accounts.
FAQ3 reader questions · AEO-eligible
Common questions on what is a stop loss.
What percentage should a stop loss be?
There is no universal percentage, because it depends on the stock's volatility and your position size. A widely used rule is to risk only 1 to 2% of total capital per trade, then place the stop at a structural level and size the position to fit that risk.
What is the difference between SL and SL-M orders?
An SL-M (stop-loss market) order triggers and fills at the best available price, prioritising certainty of exit. An SL (stop-loss limit) order triggers but only fills within your limit price, protecting against bad fills but risking no fill in a fast market.
Does a stop loss guarantee my exit price?
No. A market stop guarantees an exit but not the price, and a gap-down can fill well below your trigger. A limit stop guarantees the price but not the exit if the market jumps past your limit.
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